Road to financial success begins before college

Gail MarksJarvisTribune staff reporter

Q: I will be attending college in the fall, and like many other graduating seniors, I am worried about managing my finances. I plan to attend the School of Visual Arts and, like many art conservatories, it is very expensive. I have no job experience or a savings or checking account, and I know nothing about credit. I'm afraid my lack of knowledge and poor spending habits could leave me with a lot of debt. What is the best possible solution?

-- Patrick Anderson of Chicago

A:You are halfway there because you are thinking ahead. Most students don't consider the impact of debt until they are buried in it at the end of college. Then, escaping it can be difficult and painful. If you were busy with classes and missed credit card payments, you will have blemishes on your credit score, the number that indicates how you have handled debt.

Any mistakes stay on your record for seven years, and can keep you from getting an apartment and a job. In addition, the score affects the interest rate on every loan you want. So a bad credit score could add hundreds, or even thousands, to the cost of buying a car or home later on.

The solution is to take control now. A good starting place would be to take a personal finance class through a university extension office this summer. They offer classes to the public, and there are no entrance tests or requirements. You aren't graded on your work. Sometimes, community education classes also are available.

If you aren't in an area with such a class, consider enrolling in a personal finance class once you get to college. Not all provide them, but there is a growing trend at colleges to give students the basics they need about financial matters. The classes cover everything from budgeting to credit scores and basic investing principles.

An alternative would be to get the book "Complete Idiot's Guide to Personal Finance in Your 20s and 30s" by Sarah Young Fisher and Susan Shelly, or to use the many resources on college Web sites. For example, you could try http://financialsuccess.missouri.edu. Under the "student issues" tab, go to "student survival" and then "Financial Path to Graduation."

Mark Oleson, the director of the Office for Financial Success at the University of Missouri, said the Financial Path to Graduation worksheets get you thinking about what you are spending for college. He worries that too many students take on more debt than they should, given their career choices. Oleson said students might be able to decrease the debt they assume by working during summers, or while in college. You might want to try to finish college more quickly than four years, or even take longer if you can work more.

If you borrow money for college, seek federal loans--such as Stafford loans--from your school's financial aid office, and try to skip private loans. The federal loans generally carry much lower interest rates than private loans from banks. That means that over the next 10 or 20 years, you could save yourself thousands of dollars in interest.

There is a limit on how much money you can borrow--$23,000 over four years for Stafford loans. If you need more than that, ask if the state government in your home state or state where your college is located offers low-interest loans with interest rates close to the 6.8 percent the federal loans charge. Also, parents can borrow the entire cost of college with what are called PLUS loans--a cheaper choice than going to a bank for a private loan.

For information on loans, including calculators that let you compare interest rates, use www.finaid.comThis summer, open a checking and savings account and practice balancing your checkbook--or tracking what you have spent so that you don't overspend and run up fees from your bank. Learn about this practice at http://financialplan.about.com/od/banking/ht/BalCheckbook.htm, or http://www.montana.edu/wwwpb/pubs/mt8703.pdf.

As you do this, start thinking about what you will need to spend each month for college--everything from housing to books and other expenses. If you put together a budget, you will be prepared and not have to go into further debt. You can find easy tools that will explain budgeting and how to do it at

When you get to college you might want a different bank than the one you might use now. You will probably need a debit card to remove your money from a checking account via an automated teller machine.

Your goal should be to find ATMs that don't charge you any fees. But generally that means opening an account with a bank that has a no-fee ATM on campus. Ask about that when you arrive at school.

You might think ATM fees don't matter, but paying $2 a time can add up. If you use an ATM twice a week, that could be about $200 a year. If you invested $200 a year in a stock market mutual fund instead of throwing it away in ATMs, you could build up about $97,000 over the next 40 years.

Finally, beware of the credit card offers you will receive when you arrive on campus.

These cards can be poison for your financial future. Most charge relatively high interest rates--often 18 percent or more a month. And if you miss a credit card payment, the interest rate can shoot up to 28 percent or more. Worse yet, if you are on time paying one card, but miss another, all your interest rates can shoot up.

Credit card companies share information through an elaborate computer web that tracks every payment you make and don't make. This is how your credit score is built.

Some people encourage college students to obtain credit cards to start building a good credit record. If you think you might be tempted to buy what you can't afford to pay off each month, or if you worry you might misplace a bill from time to time, skip the credit cards, and just use a debit card.

Gail MarksJarvis is a Your Money columnist and the author of the book, "Saving for Retirement Without Living Like a Pauper or Winning the Lottery." Contact her at gmarksjarvis@tribune.com.